Insurers receive a thorough and comfortable fellating from the Fifth Circuit

As a lawyer I work with is fond of saying, “Every insurance policy should be stamped ‘VOID IN THE EVENT OF CLAIM’ in big red letters on every goddamn page.” Insurance companies are in the business of collecting premiums and . . . well, that’s about it.

Today the U.S. Court of Appeals for the Fifth Circuit issued its much anticipated ruling in In re Katrina Canal Breaches Litigation (PDF, 52 pages). The case involves multiple lawsuits brought by and on behalf of New Orleans, La. residents whose property was destroyed when levees failed in the wake of Hurricane Katrina, flooding large parts of the city. The defendants are the insurance companies that issued the plaintiffs’ homeowners, renters and commercial property policies.

The lawsuits all ended up in federal court, either by direct filing or by removal from state courts. Relying on flood exclusions written into the plaintiffs’ policies, the insurers contended that the plaintiffs weren’t entitled to coverage. Plaintiffs’ counsel advanced an array of beautifully conceived arguments designed to show that the flood exclusions were ambiguous and unenforceable. In response to numerous motions to dismiss filed by the insurers, the federal district court judge bought the plaintiffs’ arguments in some cases and rejected them in others. (Different insurers’ policies use different wording, which explains the apparently incongruous results.)

On appeal, the Fifth Circuit moved heaven and earth to help the poor beleaguered insurers, ultimately concluding that all the flood exclusions at issue were unambiguous and enforceable. The court received substantial assistance in that regard from Louisiana’s codified rules of contract interpretation, which are much more insurer-favoring than those of other states. Result: no coverage for anyone.

Today’s ruling likely sounds the death knell for a ton of other lawsuits involving thousands of claimants. The Fifth Circuit’s analysis is broad enough to cover pretty much any flood exclusion, and the Supreme Court has no interest whatsoever in deciding contract interpretation cases governed by state law.

Hats off to Plaintiffs’ counsel in these cases for fighting the good fight. Maybe the residents will have better luck with their tort claims against the Army Corps of Engineers, but that’s an even tougher road than the first-party insurance coverage claims.